Best’s Special Report: U.S. Life/Annuity and Health Credit Rating Upgrades Outpace Downgrades in First-Half 2019

Credit Rating upgrades for the U.S. life/annuity (L/A) and health segments outpaced downgrades by a wider margin than in the first-half of 2018, according to a new AM Best special report.

The Bests Special Report, titled, L/H Upgrades Outpace Downgrades in First-Half 2019, states that in the first half of 2019, there were seven rating upgrades and three downgrades in the L/A segment, compared with eight upgrades and five downgrades in the first half of 2018. In the health segment, there were eight rating upgrades and one downgrade, compared with nine upgrades and three downgrades in first-half 2018. No upgrades or downgrades were made in the life reinsurance segment in first-half 2019, compared to one upgrade in the same prior-year period.

The positive rating development in the L/A segment was based on factors that include improved risk-adjusted capitalization from an increase in profitability, owing to the Tax Cut and Jobs Act, as well as a modest increase in interest rates in 2018 and expense reductions. The health segment continues to see strong operating results and positive earnings, along with favorable medical cost and growth trends, which have fostered positive rating development.

In first-half 2019, seven life/health rating units were placed under review, compared with 25 in the first-half of 2018. The high number in 2018 mainly reflected elevated merger and acquisition activity. Affirmations remained the most common rating action for the life/health industry at 79.9%, consistent with most years.

Despite AM Bests revised L/A market segment outlook to stable from negative in December 2018, AM Best sees potential for a global economic slowdown, with a recession likely in 2020. This is based on the prolonged trade/tariff war and the reduction in interest rates by the Federal Reserve in late July 2019, with two more reductions possible later this year. Although the industry has benefited from an easing in regulatory oversight, changing fiscal and political dynamics could slow down or even reverse some of these gains. However, carriers have strengthened their risk-adjusted capitalization and enterprise-wide liquidity, which likely will mitigate the impact of issues such as investment credit and liquidity risk, which continue to rise for many carriers.

AM Best maintains a stable outlook on the U.S. health industry segment, based on several factors, including positive earnings supported by strong results in all major lines of business, growth in capital and surplus and a decline in near-term regulatory uncertainty. However, health insurers must remain watchful of emerging issues, rising cost trends and utilization.

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Brian Virostek

Financial Analyst

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Frank Walko

Financial Analyst

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Joseph Zazzera, MBA


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Christopher Sharkey

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Jim Peavy

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